It was perhaps inevitable that when output did start growing again in 2013, everyone would breathe a huge sigh of relief, and extol what was happening. But that time has passed, and yet mediamacro - with few exceptions - has not told people the truth about the recovery. What they have not said is that the recovery does not really deserve that name. This picture tells you why.
The first point is to stop talking about GDP, and start talking about GDP per head. An economy that grows because it has more people in it is not obviously a good or bad thing, and from the government’s point of view - given its (missed) net migration target - it represents a failure. It is GDP per head that determines living standards, which is what matters.
Now if you were on a journey, and in one part of your journey you were delayed by 10 minutes because of a traffic jam, you would be relieved when that jam came to an end, but would you call moving again a recovery? Surely you would only talk about a recovery if you made up for some of that lost time. As the chart shows, we have failed as yet to make up for any of the ground lost not just in the 2009 recession, but also ground lost as a result of fiscal austerity in 2010 and 2011.
So we have not really seen a recovery. Maybe the pessimists are right, and we will never recover any of that lost output, but still you do not call it a recovery.
I can put it another way. Quarterly growth in GDP per head since the beginning of 2013 has averaged about 2% at an annual rate. That is below the average growth rate since 1955. A recovery from a deep recession would have growth rates well above the long term average.
So current growth is unexceptional, and nothing to write home about. The half-truth here is that growth elsewhere has also been poor, but largely because other countries have also implemented premature fiscal austerity. (In terms of GDP per head, both the US and Japan have done better than the UK since the recession.) But even GDP per head may be giving us an overoptimistic picture about average living standards. I’m going to break my one chart rule for this series to add this from the ONS. It plots GDP per head, and Net National Disposable Income (NNDI). The first measures production per head before depreciation, whereas NNDI measures income per head after depreciation.
NNDI has not increased at all under the coalition government, and the reason is that while overseas agents have been receiving some of the income from UK production, domestic residents’ income from overseas production has not been increasing by as much. This is a key reason why the UK current account deficit has been increasing.
In a nutshell, the prosperity of the average citizen in this country has hardly increased over the period of this coalition government - a result that is totally unprecedented since at least WWII. As recoveries from recessions go, this does not seem like a recovery worthy of the name. Yet we keep being told by mediamacro that the Coalition’s strong card is its economic record!
Previous posts in this series
(3) The 2007 boom